Highlights of Report Number:† 2013-10-082 to the Internal Revenue
Service Deputy Commissioner for
Operations Support.

IMPACT ON TAXPAYERS

The
IRS requires that its own employees file their Federal tax returns on time and
pay any Federal tax debt.† However, TIGTA identified hundreds of employees working
for IRS contractors (contractor employees) who were not held to that same
standard.† The IRS should address tax noncompliance for these contractor
employees to ensure that all individuals employed by the IRS, whether as
Federal employees or contractor employees, are tax compliant.

WHY TIGTA DID THE AUDIT

The overall objective of this audit was to
determine the effectiveness of the IRSís background investigation process to
identify contractor employees who do not file required Federal tax returns or
who owe Federal taxes but are not currently on a payment plan.

WHAT TIGTA FOUND

As of
June 14, 2012, 691 (5 percent) of the 13,591 IRS contractor employees reviewed by
TIGTA had $5.4 million in Federal tax debt.† These Federal tax debts were
either agreed to by the taxpayers or affirmed by the court. †Of the 691
contractor employees, 352 were not currently on a payment plan to resolve their
tax debt.† Most of the contractor employees appeared to have been compliant
when their initial staff-like access was granted.† However, at least 319
contractor employees had tax debt assessed after they were granted staff-like
access, and these employees were not currently on a payment plan.† Under IRS
policy, these 319 contractor employees were not eligible for staff-like access
and should not have had access to IRS facilities, systems, and data.

TIGTA
identified five IRS contractor employees who either did not file required tax
returns or filed them late but were still granted staff-like access.† TIGTA also
identified 13 IRS contractor employees who were tax compliant at the time
staff-like access was granted but who subsequently failed to file a required
Federal tax return while assigned to an active IRS contract.†

TIGTA
identified weaknesses in the IRSís existing practices that allowed contractor
employees with Federal tax debts and instances of nonfiling to go undetected
after staff-like access was initially granted because the IRS does not
continuously monitor contractor employee tax compliance in the same way it
monitors IRS employee tax compliance.† Instead, the IRS reviews contractor tax
compliance only every five years or if the contractor employee has longer than
a two-year break in service.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the IRS continuously
monitor contractor employee tax compliance similar to the way IRS employee
Federal tax compliance is monitored.† In addition, TIGTA recommended that when
revalidating contractor employee staff-like access after a break in service of longer
than two years, the IRS should complete a tax compliance check.† Finally, TIGTA
recommended that the IRS further evaluate the contractor employees TIGTA
identified as potentially noncompliant and promptly bring those individuals
into compliance or remove them from IRS contracts.

In their response, IRS management agreed with our
recommendations and plans to establish and implement policies to ensure that contractor
employee tax compliance is continuously monitored and background clearance
revalidations include a tax compliance component.† In addition, the IRS plans to
further research and carefully evaluate the contractor employees identified in
this report as potentially noncompliant and refer them for additional action as
appropriate.† Finally, the IRS plans to convene a team to fully explore all
viable options to address any future tax noncompliance.

READ THE FULL REPORT

To view the report, including the scope, methodology,
and full IRS response, go to: †